Co-op profits hit amid hard trading conditions

The boss of The Co-operative Group today said trading conditions were the worst he had experienced in over 40 years of retailing as the mutual unveiled a drop in half-year profits.

The Co-op, the UK's fifth biggest food retailer, reported a 10% decline in underlying operating profits to £275.1 million in the 26 weeks to July 2.

The mutual saw a boost to profits and sales in its financial services division, which includes the Smile bank and recently acquired Britannia building society, but this was overshadowed by a 5% drop in revenues and 21% fall in profits at its foods arm, which includes the Somerfield chain.

Peter Marks, group chief executive, said: "At the full year we warned that the downturn was biting deeper than anyone had expected and predicted that challenging trading conditions would continue into 2012.

"This has clearly proved to be the case. Indeed, it is the worst I have seen in over 40 years of retailing and, against this backdrop, the results we are announcing today are in line with our expectations."

The food business recorded sales of £3.7 billion in the half year, down from £3.9 billion last year, and underlying operating profits of £135.4 million, down from £171.6 million.

"Intense competition from all major retailers, greatly diminished customer confidence and the start of the Government's austerity cuts have all had a part to play," the group said.

The company has committed to investing £2 billion in the business over three years, with £280 million spent in the period.

The Co-op opened two new distribution centres - in Andover, Hampshire, and Newhouse, North Lanarkshire - for its foods division in the period and two more, worth £110 million, are in the pipeline.

The group has refitted 244 food stores and opened eight new stores in the period. It plans to refit 259 and open 30 in the second half of the year.

Mr Marks continued: "Looking ahead, we do not see signs of any real improvement in the economy and we are planning accordingly to help our customers, as much as possible, through this difficult period.

"Given the outlook and our determination to continue to invest through the cycle, we will find it difficult to match the record profits we made in 2010; but I remain optimistic."

The financial services arm saw underlying operating profits of £131.3 million in the period, up from £109.3 million the previous year.

Income was 17% higher, the group said, driven by growth in its insurance business.

But the group did incur a £90 million charge to cover claims for mis-selling of Payment Protection Insurance (PPI). This has been an industry-wide issue, hitting all of Britain's biggest banks.

The Co-op runs a number of other businesses, including legal services, funeral care and a pharmacy, which collectively saw underlying profits edge down to £70 million in the period from £71 million the previous year.

PA